Thursday, October 2, 2008

Potentially massive naked shorting scam uncovered?

Emails show journalist rigged Wikipedia's naked shorts

There's a very long story behind this. Basically a bunch of Wall Street insiders have been using naked shorts for years to line their pockets. With a traditional short sale, traders borrow shares and sell them in the hope that prices will drop. A naked short works much the same way - except the shares aren't actually borrowed. They're sold but not delivered. Widespread and deliberate naked shorting can artificially deflate stock prices, flooding the market with what amounts to counterfeit shares. The US financial media and some major banks are implicated in this scandal. There might be nothing behind this story, or it could be so huge that some top people come down. Or there could be the mother of all cover-ups. Watch this space.

Posted by drewster @ 12:25 AM (452 views)
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2 thoughts on “Potentially massive naked shorting scam uncovered?

  • mark wadsworth says:

    People have always done this.

    Obviously, insider trading is a criminal offence (not that anybody ever gets prosecute, of course) but apart from that I don’t see a big problem, yes it depresses share prices, but that makes them cheaper for other people to buy. Plus, there is no fundamental difference between the following:
    1. Selling a contract for difference
    2. Spread betting
    3. Selling a call option
    4. Buying a put option
    5. Selling a future
    6. Covered short selling
    7. Naked short selling

    they are all ways to try and profit from a share price (or indeed an index) going down.

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  • I don’t understand naked shorting well enough to differentiate it from fraud.

    @Mark, surely eg spread betting not affecting the share price, and eg shorting affecting the share price is a fundamental difference? One enables stock price influence, the other does not..?

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